Analysis: Is the war all about oil?-I

www.upi.com By Sam Vaknin UPI Senior Business Correspondent From the Business & Economics Desk Published 3/19/2003 2:22 PM

SKOPJE, Macedonia, March 19 (UPI) -- If the looming war was all about oil, Iraq would be invaded by the European Union, or Japan -- whose dependence on Middle Eastern oil is far greater than that of the United States. The United States would probably have taken over Venezuela, a much larger and proximate supplier with its own emerging tyrant to boot.

At any rate, the United Sates refrained from occupying Iraq when it easily could have, in 1991. Why the current American determination to conquer the desert country and subject it to direct rule, at least initially?

There is another explanation, insist keen-eyed analysts.

Sept. 11 shredded the American sense of invulnerability. That the hijackers were all citizens of ostensible allies -- such as Egypt and Saudi Arabia -- exposed the tenuous and ephemeral status of U.S. forces in the Gulf. So, is the war about transporting American military presence from increasingly hostile Saudis to soon-to-be subjugated Iraqis?

But this is a tautology. If America's reliance on Middle Eastern oil is non-existent, why would it want to risk lives and squander resources in the region at all? Why would it drive up the price of oil it consumes with its belligerent talk and coalition-building? Why would it fritter away the unprecedented up-swell of goodwill that followed the atrocities in September 2001?

Back to oil. According to British Petroleum's Statistical Review of World Energy 2002, the United States voraciously -- and wastefully -- consumes one of every four barrels extracted worldwide. It imports about three-fifths of its needs. In less than 11 years' time, its reserves depleted, it will be forced to import all of its soaring requirements.

Middle Eastern oil accounts for one-quarter of U.S. imports, Iraqi crude for less than one-tenth. A back of the envelope calculation reveals that Iraq quenches less than 6 percent of America's Black Gold cravings.

Compared with Canada (15 percent of American oil imports), or Mexico (12 percent) Iraq is a minor supplier. Furthermore, the current oil production of the United States is merely 23 percent of its 1985 peak -- about 2.4 million barrels per day, a 50-year nadir.

During the first 11 months of 2002, the United States imported an average of 9,000 bpd from Iraq. In January 2003, with Venezuela in disarray, approximately 1.2 million bpd of Iraqi oil went to the Americas, up from 910,000 bpd in December 2002 and 515,000 bpd in November.

It would seem that $200 billion -- the costs of war and post-bellum reconstruction -- would be better spent on America's domestic oil industry. Securing the flow of Iraqi crude is simply too insignificant to warrant such an exertion.

Much is made of Iraq's known oil reserves, pegged by the U.S. Department of Energy at 112 billion barrels, or five times the United States' -- not to mention its 110 trillion cubic feet of natural gas.

Even at 3 million bpd -- said to be the realistically immediate target of the occupying forces and almost 50 percent above the current level -- this subterranean stash stands to last for more than a century.

Add to that the proven reserves of its neighbors -- Kuwait, Saudi Arabia, the United Arab Emirates -- and there is no question that the oil industries of these countries will far outlive their competitors'. Couldn't this be what the rapacious Americans are after? -- wonder genteel French and Russian oilmen.

After all, British and American companies controlled three-quarters of Iraq's mineral wealth until 1972 when nationalization denuded them.

Alas, this "explanation" equally deflates upon closer inspection. Known -- or imagined -- reserves require investments in exploration, development and drilling. Nine-tenths of Iraq's soil is unexplored, including up to 100 billion barrels of deep oil-bearing formations located mainly in the vast western Desert. Of the 73 fields discovered, only 15 have been developed.

Iraqi Oil Minister Amir Rashid admitted in early 2002 that only 24 Iraqi oil fields were producing.

The country has almost no deep wells, unlike Iran, where they abound. The cost of production is around $1.00 to $1.50 per barrel, one-tenth the cost elsewhere.

Texas boasts 1 million drilled wells, Iraq barely has 2,000.

The Department of Energy's report about Iraq concludes: "Iraq generally has not had access to the latest, state-of-the-art oil industry technology (i.e., 3D seismic surveys), sufficient spare parts, and investment in general throughout most of the 1990s."

It has reportedly been utilizing questionable engineering techniques such as over-pumping, water injection and old technology to maintain production.

The quality of Iraqi oil deteriorated considerably in the past decade. Its average American Petroleum Institute gravity declined by more than 10 percent, its water cut (intrusion of water into oil reservoirs) increased and its sulfur content shot up by one-third. Iraq's oilfields date back to the 1920s and 1930s and were subjected to abusive methods of extraction. Thus, if torched during a Gotterdammerung, they might well be abandoned altogether.

According to a report published by the United Nations two years ago, Iraqi oil production is poised to fall off a cliff unless billions are invested in addressing technical and infrastructure problems. Even chaotic Iraq forks out $1.2 billion annually on repairing oil facilities.

-0- Part 2 of this analysis will run Thursday. Send your comments to svaknin@upi.com